Inner City Press Bank Beat
Archive # 3:  August-September, 1999

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September 27, 1999

    As has become a trend, we’ll focus this week on the overheated Internet banking field. Elsewhere on this site, you’ll find updated reports on HSBC - Republic and Republic’s self-funding “probe”, Fleet - BankBoston and late breaking connections with the Russian money laundering scandal, Bank of Scotland - NatWest, and the Federal Reserve.

     E*TRADE, which has applied to the Office of Thrift Supervision to acquire Telebank, recently submitted to the OTS a purported response to ICP’s comments attacking Telebank’s limited Community Reinvestment Act assessment area (only Arlington, Virginia, while Telebank runs ads to solicit deposits all over the country). Telebank CEO Caplan told Reuters on August 6 that Telebank wants to expand its lending -- see “Interview: Telebanc Wants to Lend More Money,” by Gilles Castonguay. E*TRADE’s defense of this seeming evasion of the CRA is its claim that Telebank remains a “wholesale” institution. But already, Telebank’s web site says, “Click here for mortgages,” and E*TRADE now says: “Telebank has plans to enter into additional co-marketing arrangements to provide convenient methods for customers to access other loan products, such as auto, student, and other consumer loans. Telebank does not extend these type of loans directly to customers...”.

     And so, a whole new way to evade the CRA: solicit deposits nationwide, but claim that the loans you are offering are actually from some other company. By this logic, Bank One could offers Chase’s loans, and vice versa, and both could be considered “wholesale” banks, limiting their CRA assessment areas to Chicago and New York, respectively. ICP continues to oppose E*TRADE’s and Telebank’s attempts to evade meaningful application of the CRA to their operations. On this issue, “It’s [NOT] time for E*TRADE...”.

    E*TRADE concludes its response by “reiterat[ing] its belief that the OTS should not grant the request by ICP for an informal meeting... any issue raised by ICP can be adequately addressed through the submission of written materials.” But the OTS granted ICP’s request for an informal meeting on Green Tree’s and Conseco’s applications, despite the availability of the same arguments against doing so. In fact, the OTS on September 23 conducted a “formal meeting” on Green Tree’s application. ICP participated in the formal meeting, held at the OTS’ Dallas office by video conference from the OTS’ Northeast Regional Office in New Jersey. The process was hardly burdensome on the applicant, though it may have been unpleasant: evidence was read into the record in support of the proposition that Green Tree is the type of predatory lender which should not be granted a thrift charter. Green Tree again acknowledged that it does not report positive payment history of its borrowers to the credit bureau, and stated that its short Community Reinvestment Act “plan,” which does not even acknowledge Conseco’s current plan of collecting deposits through its insurance agents, should be sufficient. The ways of evading CRA continue to mount, but E*TRADE’s and Telebank’s way is among the most troubling. Again, on this issue, “It’s [NOT] time for E*TRADE...”.

    Meanwhile, in Delaware, an application to create “The” and “ Bank” has been filed, by relatives of JeffBanks CEO Cohen. The applicants incorporate their proposed holding company on July 20, 1999, under the name “TBC Financial, Inc.,” then a week later amended its name to “The, Inc.” -- apparently believing that the “dot-com” name will be beneficial (understatement). The plan is to “operate nationally, but with a lower cost structure than many depository institutions.” Application at Page 12. They also state that “The Bank intends to acquire JeffBanks, Inc. Servicing Platform form Hudson United Bancorp after the completion of JeffBanks and Hudson’s impending merger. See... Ex. II to the confidential section of this application.” The Application publicly discloses that “certain officers and directors of the Bank are currently serving as officers and directors of JeffBanks, Inc... Full disclosure of these relationships has been made in the ‘Confidential Private Placement Memorandum’... Exhibit III to the confidential section of this application. We’re all for “Internet privacy” -- but this is going a little too far.

    On September 20, the Federal Reserve Board approved an application by Canadian Imperial Bank of Commerce to form what the Fed described as a “bank that would deliver banking products to its customers solely through a variety of electronic delivery channels.” While some have characterized CIBC’s proposal as being for an “Internet bank,” mid-way through the CIBC Fed proceeding, CIBC committed that “customers would be able to open accounts, apply for loans, or make deposits at the Bank only through one of the Bank’s pavilions,” which are currently slated for Winn Dixie supermarkets in Orlando and Tampa, Florida. Strangely, these “pavilions” will consider of a computer terminal with dedicated access to a CIBC Internet web site. But customers will be precluded, according to the Fed, from access this web site from home or work, and applying for loans. The Fed said that “on this basis, it is consistent with the regulations implementing the CRA for Bank to define its assessment area based on the locations of its pavilions with deposit-taking ATMs.” While ICP questions the Fed’s enforcement of the CRA (see ICP’s Fed Reporter page and archives for more on this), this formulation by the Fed is interesting -- “on th[e] basis” of CIBC’s commitment that it will only open accounts at the pavilions, the Fed finds it consistent with the CRA that CIBC’s assessment area be based on the location of pavilions. Telebank allows and solicits deposits from all over the country. “On this basis...”.

[Note: How and if the Fed will police this counter-intuitive business model remains to be seen... Why base a bank around a web site, if you’re not going to allow people to apply for loans over the web site? The Office of Thrift Supervision recently fined a savings bank for deviating from the business plan it had submitted to the OTS to get its charter. We’ll see whether the Fed takes the commitments it obtains and memorializes in approval orders as seriously... And/or whether the Fed requires public notice when and if CIBC decides to change its strangely limited business model...]

    More substantively (and returning full circle), on the withholding of material sections of applications, E*TRADE continues to withhold its arguments about why Japan’s SOFTBANK, which owns 27% of E*TRADE, should not have to apply as a savings and loan holding company as to Telebank. ICP continues to pursue this issue, and it will be updated in this space...

  Until next time, for or with more information, contact us.

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September 20, 1999

   In terms of a desire to sell that may not, for now, be satisfied, see ICP's report on HSBC - Republic, the deal that may be re-priced, or is falling apart altogether.  Click here to view.  And here's Hudson United:

  Hudson United:  in the Newburgh, NY Metropolitan Statistical Area (“MSA”) for conventional home purchase loans in 1998, Hudson United denied the applications of African Americans 4.67 times more frequently than applications from whites, and denied the applications of Latinos 2.74 times more frequently than applications from whites. In the Dutchess County, NY MSA in 1998 for conventional home purchase loans, Hudson United denied the applications of Latinos 4.08 times more frequently than applications from whites, compared to the industry aggregate denial rate disparity of 1.42 in this MSA in 1998. North of New York, Hudson United in the diverse Bridgeport, Connecticut MSA in 1998 made no loans to African Americans or Latinos. And in the Philadelphia MSA (where Hudson United is trying to acquire JeffBanks), Hudson United for conventional home purchase loans in 1998 made 178 loans to whites, and only three loans to African Americans, and only two loans to Latinos. For these race-specified loans, only 1.6% (compared to the aggregate’s 7.0%) of Hudson United’s loans were to African Americans, and 1.1% (compared to the aggregate’s 2.2%) of Hudson United’s loans were to Latinos. When Hudson United expanded into New York, its disparate lending, particularly in Connecticut, resulted in the FDIC requiring from Hudson United a rare CRA plan, and the quarterly reporting of data. Hudson United’s record in full-year 1998 was again strikingly disparate, as demonstrated above -- in fact, worse so.

September 13, 1999

   One big deal (Fleet - BankBoston) proceeds; another (HSBC - Republic) is bogged down.  Meanwhile the more mundane transactions keep on comin’...  Citigroup says it’s selling its Eurobond custody and dividend-paying unit to the Bank of New York -- which seems strange, given the world of trouble Bank of New York is facing for its role in Russian money laundering. One can only assume that Citigroup and BONY think they can take this transfer without applying to the Federal Reserve Board.   Meanwhile, back in the U.S., Long Island-based North Fork Bancorp is mowing down the remaining thrifts in the market: Jamaica Savings and more recently, Reliance. Reliance will be a “purchase,” JSBC a “pooling of interests.” Meanwhile, the FASB on September 8 issued a draft rule that would end the use of pooling accounting for mergers. Vultures say this will dampen the M&A frenzy.  Not fast enough...

September 7, 1999

    The bank scandals in the news continue to unfold. In light of the Japanese Financial Supervisory Agency’s inquiry into its “mis-valuation” of investments, Republic National Bank has pushed by its shareholders’ meeting on HSBC’s takeover bid from September 9 to October 12.  HSBC’s attempts to buy Seoul Bank in South Korea have fallen apart. And the probes into Russian money laundering have widened beyond Bank of New York and Republic, to include (at least) Deutsche Bank and UBS in Switzerland.

    Back in the USA, at the cutting edge of Internet banking and the Community Reinvestment Act, Inner City Press has received from the Office of Thrift Supervision (the “OTS”), in response to ICP’s August 23, 1999 Freedom of Information Act (“FOIA”) request, portions of E*TRADE’s August 2 submission (the “Resp.”) to the OTS’ Atlanta office. E*TRADE’s Resp. includes a purported response to ICP’s CRA protest and request for an informal meeting.

    The OTS has asked E*TRADE: “If you have not current intention to initiate a retail strategy during the term of the proposed business plan, state whether you will accept an approval order condition that prohibits lending to the retail public, except on an accommodation basis, unless a revised business and CRA plan are approved by the OTS.” Resp. at 25, reciting OTS question number 30.

    Significantly, E*TRADE resists such a commitment / condition.  Resp. at 25-26. ICP reiterates for the record a Reuters news service article of August 6, 1999: “INTERVIEW: Telebanc Wants to Lend More Money:”

“‘We’ll look at a whole host of lending products from auto loans to student loans to consumer loans,’ [Telebanc] chief executive Mitchell Caplan told Reuters on Friday... Although Telebanc will not close the deal with E*Trade until the autumn, it has already begun to reap the benefits of belonging to a broker with more than a million customers, Caplan said. After running a recent promotional campaign mostly directed at E*Trade’s individual investors, the bank opened about 2,000 accounts within the first two week in June, said Caplan. ‘It’s a tremendous cross-sell opportunity,’ he said... The congressional debate over whether bankers, brokers and insurers should enter each other’s business did not concern Telebanc because it was a savings bank, Caplan said. ‘It was never an issue for us,’ he said, explaining how the bank’s status enabled it to offer all of those services.”

             --Emphasis added.

       The above-quoted, made as a statement to the financial wire service Reuters, clearly indicates an “intent to initiate a retail strategy.” This is why E*TRADE resists the condition proposed by the OTS’ question number 30, and is why the Applicants’ proposed “post-closing CRA Plan” is unrealistic and insufficient. This is a clear and material dispute, and is one of the grounds on which ICP is requesting an informal meeting.

     Furthermore, in light of E*TRADE’s response that such a condition would be “unfair and unnecessary to promote OTS policy objectives” and that “other financial services companies...are not so limited” (Resp. at 25), note that the OTS imposed a condition on T. Rowe Price FSB that before it seeks to lend, it would have to submit a CRA Plan to the OTS and obtain approval. Similar conditions have been placed on other thrifts, including Jackson National Life’s thrift and numerous “trust only” thrifts.

     Telebank is ALREADY different than these, in that it holds itself out as offering credit (“click here for mortgages,” see below) -- note also that E*TRADE is a stockholder in E-LOAN (Resp. at 35). ICP contends that the solution here is not for the OTS to accept this blatantly unrealistic, counter-factual and insufficient “post-closing CRA Plan” and issued an approval with the condition that the Applicants not lend until they submit a new CRA plan -- the solution is for the applicants to prepare and submit a realistic and sufficient CRA plan, that is consistent with their own public statements about their intentions to lend. This is an extremely important issue on this application, and is a major ground for ICP’s timely request for an informal meeting.

    At page 27 of the Resp., E*TRADE states that it “does not believe that the OTS should grant the request by [ICP] for an informal meeting. The commenter has had the opportunity to comment in writing on the application, and has not indicated by written submissions are insufficient to adequately address facts or issues. E*TRADE believes that any issue raised by the commenter can be adequately addressed through the submission of written materials.”

    The OTS’ regulations provide that “[i]f a commenter has filed a written request for an informal meeting containing the information described at 516.120(b), the OTS will arrange an informal meeting.” Emphasis added. ICP has, in its timely submissions, described the nature of the issues and facts to be discussed, and E*TRADE’s August 2 purported response shows that that the issues and facts have not been adequately addressed. ICP asks the OTS to compare the record in this case to the record before the OTS on Conseco’s and Green Tree’s applications, on which the OTS’ Dallas office granted ICP’s request for an informal meeting. The OTS’ regional office should apply the same standard...

   ICP hereby, in advance of the timely requested informal meeting, makes the following comments on the balance of E*TRADE’s August 2 submission:  There is little nexus between Arlington, Virginia and Telebank’s actual service area, pre- and post-closing. E*TRADE states, Resp. at 19, that “[d]ue to the national scope of the bank’s business, only approximately $35 million of the bank’s deposits are generated from the assessment area.” That means that $1.599965 billion are collected from other communities. In the Resp., E*TRADE breaks down Telebank’s deposits from foreign countries, by country. ICP believes that E*TRADE should be directed to submit a break-down of Telebank’s deposits by state and MSA.

    Even for the mortgage loans that Telebank purchases, Telebank’s percentage of purchased loans in low- and moderate-income (“LMI”) census tracts (11.2%) compares unfavorably with the HMDA-reporting industry’s percentage (12.2%). Note that a substantial portion of this HMDA-reporting industry aggregate is for institutions which are not subject to CRA; Telebank’s percentage, compared to other banks and thrifts, is even worse that the disparity acknowledged in the Resp. at 25. E*TRADE’s exhibit shows that this 11.2% figure is based of the number of loans. By dollar value of loans, Telebank’s record is even more disparate: less than 6% is LMI communities.

    On the issue of CRA assessment area, E*TRADE states, Resp. at 26, that “[n]either the OTS nor the other bank regulatory agencies have identified an alternative method of delineating an assessment area for banks that provide services through alternative delivery means rather than through traditional branches.” ICP points to OTS Director Seidman’s June 1999 speech at a CRA conference in Newport, Rhode Island, where the OTS’ Director identified a NUMBER of alternative methods of delineating an assessment area for such banks...

    At 26, E*TRADE tries to emphasize that “Telebank establishes new customer accounts not only through the Internet, but through the telephone as well.” But elsewhere in the Resp., E*TRADE acknowledges that “[i]t is important to note that most of E*TRADE’s and Telebank’s new customers conducts most of their relationship with E*TRADE and Telebank through the World Wide Web.” Resp. at 31. This statement confirms that the centrality of the Internet distribution channel, and the importance of addressing the “digital divide” issues that ICP raised in its first timely submission [see below].

   ICP also contests SOFTBANK’s attempt to rebut the presumption of control. ICP contends that SOFTBANK, the largest shareholder in E*TRADE, should join the holding company application as an applicant.

     Furthermore, “[t]he Attachment to the RB 20 certification submitted by E*TRADE GROUP, Inc. states that the Company is aware of several instances of its non-compliance with applicable regulations.” Resp. at 8. But E*TRADE has requested confidential treatment for the entirety of its response to this important question, on which the public has a right to comment. Note E*TRADE’s admission, Resp. at 10, that it “does not specifically monitor customer accounts for unusual or excessive trading patterns.” Note also that E*TRADE has been directed to stop advertising campaigns that the NASD found to be misleading (Resp. at 30), and E*TRADE’s ignoring of state consumer protection laws in Ohio, Nebraska and Puerto Rico (id.).

... E*TRADE has requested confidential treatment for portions of its submission which cannot legitimately be accorded such treatment. ICP is requesting this erroneously withheld information, and will provide further comment upon receipt, including at the timely requested informal meeting.  On the current record, these Applications could not legitimately be approved.

   Now we'll see what E*TRADE has to say...

    Until next time, for or with more information, contact us.

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August 30, 1999

    Let’s begin the Bank Beat this week with humor. First Union, which a week ago announced with fanfare it was providing cut rate laptop computers to thousands of its employees, to “keep them connection” -- on August 27 announced it is firing seven employees, for sending pornographic e-mail. “The company stumbled on the e-mail when the volume of message became so heavy it slowed down a server. One employee fired within the past week from the bank’s home-equity division was called into an office, shown a stack of e-mail and fired on the spot.” AP, August 27. Moral of the story? When an employer gives employees free or cut-rate computers, to stay in touch, anything can happen. Defense attorneys say you can’t blame First Union -- the EEOC is, for example, suing MBNA for sexual harassment. And it sure breaks the tedium at First Union, which remains a take-over target.

   Almost as comical is Chase Manhattan’s proposal to sell its nine-branch bank in the Virgin Islands to entrepreneur Jeffrey Prosser’s Virgin Islands Community Bank, which current has only two branches. How would a two-branch bank pay to buy nine branches? Insiders says it’s with a loan -- from Chase.  The Columbia Journalism Review has reported that Prosser also makes money from “audiotext” traffic, through his Guyanan subsidiary, GT&T. “This is 900-number telephone traffic, on which callers pay for entertainment or information. While Prosser’s spokesman, Ed Crouch, says the traffic includes services about such subjects as “psychics and sports cars,” he concedes that “a substantial percentage” of it comes for sex calls. Prosser’s Innovative Communications Corp. also owns the V.I. Telephone Corp., VitelCellular, the Virgin Islands Daily News, and St. Croix Cable TV. And we thought that the Glass Steagall Act prohibited this type of combination... How naive.

    In (slightly) more serious news, public reports now name Sovereign Bank of Pennsylvania as the new favorite in the Fleet divestiture sweepstakes. But Sovereign could hardly be considered a legitimate competitor to the proposed Fleet Boston. Sovereign is a savings bank -- institutions that do far less small- and middle-market lending than commercial banks do. Sovereign has only $24 billion in assets -- more than six times smaller than the proposed, post-divestiture Fleet Boston. (As discussed in this week’s ICP CRA Reporter, Sovereign is also one among the lemmings trying to create and spin off -- or create separate stock shares for -- an Internet bank). Informed analysts opine that Fleet is actually in negotiations with another (“real”) bank and is using Sovereign to drive up the price at which is will sell the branches.  That other bank may well be HSBC.  

    HSBC claims to be on track for closing its acquisition of Republic by October 1 -- in fact, “the bank hopes to complete most of its integration plan before closing the deal.” Buffalo News, August 24. But HSBC is still trying to withhold from the public its presentation of its first half 1999 lending record, which the New York State Banking Department requested in order to assess HSBC’s compliance with conditions the NYSBD previously imposed on the bank, to double its marketing in minority census tracts, to bring itself closer to its peers’ performance. And a new issue has emerged:

    Lost or unclear in the hoopla about Bank of New York’s involvement in Russian money laundering is Republic National Bank’s role. USA Today has reported that the alleged $15 billion of money laundering took place through accounts at Bank of New York AND Republic National Bank. The House Banking Committee has called for hearings into the matter, and regulatory authorities on both sides of the Atlantic are demanding documents, to get to the bottom of the scandal. It is questionable whether the U.S. Federal Reserve can or should go forward on HSBC’s application to acquire Republic until Republic’s role in the unfolding scandal is made clear.

    The “spin” for now is to present Republic as the whistle-blower: Republic filed a “suspicious transaction” report with the Federal Bureau of Investigation in August 1998. But the FBI was already aware of suspicious activity by the Benex shell corporation. A Republic spokeswoman states that Republic kept the account through which money was laundered open “at the request of authorities.” None of this, however, has been verified, and HSBC has not addressed it in any of its public submissions to the Fed. So is HSBC’s application “on track”? ICP has commented to the Fed that it should wait until the facts are clear -- or should deny HSBC’s application, on Community Reinvestment Act and fair lending grounds.

   The important issue of how the Community Reinvestment Act applies to Internet banks is also being missed by the regulators, and by Congress’ refusal to modernize the CRA. In recent months, Bank One has undertaken a major initiative, “” Bank One has run hours of television advertising for this bank, on both coasts, soliciting deposits from these markets (where Bank One denies any CRA responsibility). The regulators have not even required Bank One to file an application (on which the issue could be raised). is in fact NOT a new bank -- it’s simply a marketing name for Bank One’s First Chicago unit, which declines any CRA responsibility in most markets where Wingspan is soliciting deposits.

   Similarly, American Express has started an Internet bank, using the moniker “Membership B@nking.” American Express exemplifies the need to modernize CRA. AmEx is a major player in small business lending -- in fact, for example, it was the number one small business lender by number of loans in the Philadelphia market in 1998. AmEx also owns a bank, called Centurion Bank, that the Federal Reserve defines as a “non-bank bank.” But AmEx’s small business lending is not reviewed under CRA -- Centurion Bank is headquartered in Midvale, Utah, and the FDIC’s CRA exam of the bank focuses almost entirely on the Salt Lake City market, and on a “community development” (relatively minuscule grants) test.

    The other CRA status that is mis-used to evade CRA is that of “wholesale bank.”  Telebank, for example, which advertises and solicits deposits in big markets nationwide, was mis-designated a “wholesale bank” by the OTS. Now, Telebank says it wants to begin doing consumer and education lending nationwide, while E*TRADE applies to acquire it (see Bank Beat Archive).  E*TRADE maintains that it should only be subject to CRA in Arlington, Virginia, and the OTS refuses to comment.  See, e.g., American Banker of August 25, 1999, at 2. The issues has been squarely raised; now we’ll see what the OTS (and E*TRADE) do. The OTS has informed ICP that it will be providing it with “three quarters of an inch” of E*TRADE’s supplemental filings with the OTS, but the documents have not been received as of August 29. Developing...

  One interesting clarification on this Internet banking theme: Canadian Imperial Bank of Commerce, which asked for (and received) OCC approval for a new bank in Florida earlier this year (see Bank Beat Archive), which would have “kiosks” in Winn Dixie supermarket branches as well as a web site -- now tells the Fed, in an August 24 letter, that “[t]he Bank will neither operate through traditional brick and mortar branches nor operate as an Internet bank. Instead, Bank customers will only be able to open bank accounts, make deposits and apply for loans through the Pavilions, not through the Internet or telephone... the Bank anticipates that existing customers of the Bank will be able to review account information, transfer funds between accounts and pay certain bills over the Internet.”

    First, that limitation was NOT made clear in the initial application, as least as it was provided to ICP. Second, CIBC did not apparently make this commitment to the OCC, which would be the primary supervisor of this proposed Bank. The OCC approval order, despite its length, does not mention this limitation at all. CIBC now tells the FRB things that it “will not” do (such as operate as an Internet bank), and that its customers will “only be able” to apply for loans at the kiosks. Who will enforce this? How long do these “commitments” hold true? As an example, the OTS requires new savings and loan holding companies to submit a three year business plan, and often states in its Order that if there is any material change to the Business Plan, the applicant must return for new approval (including new public notice and comment) before implementing any changes. Is the FRB going to impose similar conditions here? Or will the FRB allow this questionable (and apparently unverifiable) “commitment” to become part of the record (including the record “rebutting” ICP’s comments on CRA issues), and then have no way to verify if the commitments remain in force?

    CIBC’s August 24 implies that even supplements to a customer’s loan application will not be taken by telephone. Frankly, CIBC’s “commitments” are simply not credible. CIBC has previously alluded to Canadian “snow birds” (vacationers to Florida) as one reason for setting up this bank. But these snow birds could hardly perform all of the functions they would wish to perform, as Bank customers, only through the kiosks.

    Fourth, ICP contends that allowing customers to “pay certain bills over the Internet” would constitute “operat[ing] as an Internet bank,” which CIBC’s letter to the FRB says the Bank would not do...

    Other lemmings rushing into Internet banking are Sovereign (which is currently reported to be the frontrunner to win the Fleet divestiture sweepstakes, see above), Huntington (which has already experimented by closing and selling dozens of branches), North Fork, and even the minuscule Massachusetts thrift, Brookline Bancorp.. Will these institutions be required to file applications subject to public comment and input? That remains to be seen.

    Until next time, for or with more information, contact us.

* * *

August 23, 1999

    Dirty deeds, from high to low, this week on the Bank Beat. We’ll start at the bottom of the industry, with predatory subprime lending. Delta Funding, the largest home equity lending in New York State, remains under fire. Since at least November 1998, community and consumers’ groups have been complaining about Delta’s high interest rate, high foreclosure rate lending, which is targeted at communities of color. In late June 1999, Delta announced it had an “agreement in principle” with the New York Attorney General to reach a settlement. This apparently peeved the New York State Banking Department, which had been investigating Delta since mid-1998.

    Last week Delta announced it was reaching a settlement agreement with the Banking Department. The Attorney General settlement had never been finalized, and it appears to have been Delta’s hope that a formal settlement with the Banking Department would supersede any Attorney General issues, and even immunize Delta from further problems. Wishful thinking. On August 20, the NY Attorney General filed suit against Delta in federal court, asking the judge to put Delta into state receivership. The Banking Department and the Attorney General are bickering, over whose settlement is a sell-out.  Meanwhile, due to the "spin" Delta put on its announced settlement with the NYSBD, Reuters on August 18 reported that this was a "global" settlement that involved the NYS AG -- clearly incorrect.  The error is attributable to Delta, whose spokesman Marty Cohen told Bloomberg on August 17, "It made sense to settle this globally... [There are] no ouststanding investigations against the company."  The American Banker, in its August 23 article, quotes Delta's CEO Hugh Miller that "this global settlement will resolve any outstanding investigations into Delta's lending practices....".  Since Delta is publicly-traded, one wonders if this inaccurate portrayal of the NYSBD settlement as "global" doesn't take it outside of the safe harbor for forward-looking statements... In any case,  don't believe everything you read (this theme and critique is echoed below in this Report, as to HSBC)...

   There is, of course, a connection between all this and the higher levels of finance, and of the law.  On the legal front, ICP has been informed that former NY Attorney General Bob Abrams has been pulled into the Delta web, apparently to defend Delta.  High finance?  Deutsche Bank acquired Bankers Trust, which was the custodian for most of Delta’s loans; Deutsche has refused to confirm it will eliminate this line of business.  Lehman Brothers, one of Delta’s underwriters, has been required by the Office of Thrift Supervision to “identify and avoid” predatory lending practices, explicitly in connection with Delta.  Now HSBC, which is applying to buy Republic (which has been a major purchaser of securities backed by Delta’s loans, including after the AG’s charges) refuses to say it would not continuing buying Delta’s and other predatory lenders’ mortgage-backed securities.  In another misleading (or "spun") report, the American Banker on August 23 reported without qualification that HSBC is "promis[ing] to double its CRA activity in New York... over the next five years."   Missing from the spin is the fact that HSBC is already subject to a NYSBD requirement to double its lending in majority minority census tracts in the next TWO years, by the end of the year 2000.  But HSBC apparently hopes that this type of spin, reported unquestioningly in the newspaper the regulators rely on, will facilitate its pending acquisition of Republic, and perhaps even of the purchase of Fleet branches that HSBC is hoping for.  Again, don't believe everything you read...

    The beat goes on with other predatory lenders. On August 31, 1999, the Office of Thrift Supervision is holding an “informal meeting” on Green Tree’s and Conseco’s applications to get a savings bank charter. ICP has opposed this application for months, and Green Tree recently acknowledged that it does not report “favorable credit history information” about it home equity loans. That means, even if a borrower religiously pays back his or her loan for years, the borrower will still be listed as “credit impaired,” and ripe for high interest rate loans. A summary of ICP’s most recent comment to the OTS is below, at the end of this week’s report (and at the bottom of ICP’s Current Campaigns page); a further update is forthcoming, after the August 31 OTS meeting.

    Inevitably, we must mention the scandal now surrounding Bank of New York, and its apparently money laundering for Russian organized crime. Rather than reiterate the mounting public reports (see also, this week's ICP Federal Reserve Report), the question we ask is: where were the Federal Reserve, and the NYSBD, on this issue? Both of them regulate Bank of New York... And what about those “populist” Republican Congressmen, who ridiculed the regulators’ Know Your Customer regulation? Calling Bob Barr... Calling Phil Gramm...

August 16, 1999

    On the Bank Beat this week, few can miss that acquirer’s shares are in decline. Firstar down by 30%, on its proposed acquisition of Mercantile; AmSouth’s offer for First American down by over 20%; First Union rumored to be a takeover target (by Chase -- see Philadelphia Inquirer of August 15).

     Meanwhile, applicants for regulatory approval are asking for expedited action. Canadian Imperial Bank of Commerce’s application to the Federal Reserve to start up an Internet bank with Winn Dixie in Florida says: “Because industry-wide Y2K freezes on implementing new technology and making technological changes to established systems begin on or around November 15, 1999... if the Bank does not meet the November 15, 1999 deadline, the Bank may not be able to open for business until April 2000 since the industry-wide Y2K freeze extends through March 15, 2000 because of the leap year. This would adversely affect the Bank’s business plan. For these reasons, CIBC hereby requests that the Board act on this Application on or prior to August 31, 1999.”

    Here, CIBC is asking for Fed approval barely two weeks after the comment period on its application ends. ICP’s comment to the Fed is summarized below.

     Meanwhile, AmSouth keeps reiterating that it will close its deal for First American on or before October 1st, despite the fact that AmSouth has put in no response regarding its 1998 lending record, and is still seeking to withhold its divestiture proposal. This is strange, since when banks include a divestiture proposal in their initial applications, it is always public. Why should it be different if an applicant only arrives at a divestiture proposal after its initial application? AmSouth claimed that “[d]isclosure of such information at this time would be an invasion of AmSouth’s privacy” -- a strange contention, since corporations don’t have privacy rights, under the Freedom of Information Act or otherwise. Developing...

     On Firstar - Mercantile, ICP on August 12 received from the Fed a heavily-redacted copy of three pages submitted by Firstar on August 10. The Fed’s cover sheet states: “Attached is a copy of material that has been received by the Board concerning matters you have raised in comments submitted on the application of Firstar Corporation to acquire Mercantile Bancorporation, Inc. The material has been redacted to withhold information that Board staff has determined is not subject to disclosure under the Board’s rules concerning ex parte communication.”

    But Firstar’s submission has been so heavily redacted that it is impossible to comment on it; the Fed’s ex parte rules are rendered meaningless by this type of redaction.

    Firstar’s cover page, to the Board’s Associate General Counsel and to Mr. Steven Moser of the Iowa Division of Banking, states: “We still believe that if we can somehow reach an understanding on our remaining [REDACTION], we can gain regulatory approval and close in early September. Accordingly, we submit the enclosed proposal to you for consideration. [REDACTION]. Thank you. We will call you later today.”

   Firstar’s two page letter to the Board’s Associate General Counsel, and to the Superintendent of the Iowa Division of Banking, is also heavily redacted -- the entire second paragraph has been removed.

    Firstar’s third paragraph, apparently arguing that it is not really acquiring Mercantile, and that “[a]ll voting shares of Mercantile Midwest are currently owned by Ameribanc, Inc., a subsidiary of Mercantile, and shall continue to be owned by Ameribanc, Inc. during the Review Period... Hence, the merger is not a direct change in ownership of the shares of Mercantile Midwest,” is ludicrous. Firstar is clearly the acquirer here; see, e.g., Firstar’s July 28, 1999 press release on Business Wire, referring to Firstar’s “definitive agreement to acquire Mercantile.” Emphasis added.

    Firstar’s August 10 letter concludes: “We trust that, with his commitment, the Division and the Federal Reserve can conclude their review of the merger.” But the entirety of the “proposal” / “commitment” has been withheld from the public. Nevertheless, Firstar is pushing “to gain regulatory approval and close in early September.” Whether the redactions have anything to do with what CIBC claims is the “industry-wide Y2K freeze” -- is anybody’s guess.

     ICP has also received a redacted copy of an August 4 letter from Firstar to the Board’s DCCA. This letter discloses Firstar Bank Wisconsin’s volume of small business loans in 1998, and supports ICP’s and the Wisconsin Rural Development Center’s comments on the Applications. For example, while in 1997 First Bank Wisconsin made 2,236 “small business loans” (defined as loans in amounts below $1 million, or to businesses with annual revenues below $1 million), Firstar Bank Wisconsin made only 1,898 such loans in 1998. In Firstar’s CRA assessment area in Wisconsin, the decline was from 1,877 in 1997 to only 1,511 in 1998.

    Firstar’s decline in small farm loans (defined as loans in amounts of $500,000 or below) was even worse. For Firstar Bank Wisconsin, such loans declined from 775 in 1997, to only 428 in 1998 (in-assessment area loans declined from 641 in 1997 to 364 in 1998). For Firstar Bank Milwaukee, N.A., the decline was from 13 loans in 1997 to only three such loans in 1998 (in-assessment area loans declined from 11 in 1997 to only three in 1998).

    It is difficult to imagine a Federal Reserve Board order that can explain away Firstar’s steep declines in small business and farm lending from 1997 to 1998. But that’s never stopped ‘em in the past...

    Here’s a summary of the issues on Canadian Imperial Bank of Commerce’s and its subsidiaries’ (“CIBC’s”) Applications to become bank holding companies by proposing to establish a de novo national bank, CIBC National Bank / Marketplace Bank (“CIBCNB”).

    While CIBC’s Application (and the Office of the Comptroller of the Currency’s [the “OCC’s”] conditional charter approval) focus on one of CIBCNB’s distribution channels -- the kiosks in Winn Dixie supermarkets, both ignore the proper application of the CRA to CIBCNB’s other distribution (and deposit collection) channel: Internet banking. CIBC’s plan, at least as disclosed in the Application, is still unformed.  See, e.g., FRB Application at 3: “[t]he Bank has not yet finalized whether it will originate its own credit card receivables or refer customers to a third-party credit card lender under a co-branding strategy.” Emphasis added. Clearly, this (as well as the specifics of CIBCNB’s Internet distribution (and deposit collection) channel) should be finalized before the Board even considers ruling on this Application.

CIBCNB should have to have a credible and detailed plan of how it would reach and meet the credit need of low- and moderate-income consumers, including through its murkily-defined Internet distribution and deposit-collection channel. There are particularly difficulties for new, Internet-based institutions such as the one proposed to sufficiently serve the credit needs of low- and moderate-income consumers. There remain disparities in computer ownership and Internet access, by both income and race.  See, e.g., Scott Wooley, Virtual Banker, Forbes, June 15, 1998, at 127: “Internet-savvy bank customers tend to be high-balance types. Booz, Allen figures Internet customers, with their average household income of $80,000, are two to four times as profitable as other customers.”  More recently, on July 8, 1999, the National Telecommunications and Information Administration (“NTIA”) issued a study documenting deep disparities by race and income in access to the Internet. See <>, hereby incorporated, along with each of the documents it links, into the record on this application. This does not mean that Internet banks could not comply with CRA -- but particularly attention must be paid, and a credible plan must be laid out, and made public, during this applications process.

    While there is a dispute whether the proposed bank facilities in Winn Dixie supermarkets, kiosks staffed up to 14 hours a day, should be considered branches, ICP contends that CIBC’s proposed CRA assessment area -- only the Orlando, Florida Metropolitan Statistical Area (“MSA”) -- is arbitrarily based on only one of the (at least) two “channels” CIBCNB would use.   Specifically, while consumers could access the proposed CIBCNB through the supermarket kiosks, they could also access the bank via the Internet, from anywhere in the United States. CIBC’s Application, at least as provided to ICP to date by the FRS, leaves its discussion of this distribution channel murky.

Note also that Winn Dixie has recently settled charges of racial and sexual discrimination (see, e.g., The Legal Intelligencer, July 20, 1999, at 4), and that there are strong market rumors that Winn Dixie will be sold.  See, e.g., The Miami Herald of August 3, 1999: “The rumors surrounding Winn-Dixie have been intensifying this summer with news that the company’s primary owners, the Davis family of Jacksonville, had sold its 42 percent stake in American Heritage Life Investment Corp..” CIBC is allying itself with Winn Dixie -- it is not even proposing to name its bank “CIBC,” but is rather adopted a tradename already used by Winn Dixie. Accordingly, the record before the Board (at least as provided to ICP) lacks sufficient information about Winn Dixie.

Also, it is important to note (but not discussed in the Application) that CIBC is already engaged in the mortgage business in the United States. Harrison Scott Publications, September 1998: “CIBC World Markets recently hired two executive directors to bolster its origination effort. Frank Tardif will work out of the bank’s New York office, coordinating with several mortgage brokers... Meanwhile, David Burt will be in charge of loan production in the Western U.S., working out of CIBC’s Los Angeles office.” CIBC is also involved in the asset-backed securities market in the U.S.. See, e.g., Foreign Banks Invading Asset-Backed Market, American Banker, July 9, 1997.

Furthermore, inquiry should be made into CIBC’s compliance with the (extended) requirement that it cease selling new insurance policies and annuities (a requirement of the BHC Act that was triggered by CIBC’s acquisition of Oppenheimer Holdings, and that the FRB extended for one year in November 1998, while withholding the basis on which CIBC claimed it legitimate to continue selling insurance policies and annuities (see, e.g., FRB letter to CIBC dated November 17, 1998), despite the prohibition contained in the BHC Act). CIBC should not be allowed to continue to arbitrage the possible passage of financial deregulation legislation in Congress, and this issue should be inquired into in this proceeding.

There are other managerial issues that need to be inquired into in this proceeding. Last month, investors sued CIBC for “knowingly provid[ing] fraudulent information that led to... investment in Livent Inc. just months before the Toronto-based theatrical company... filed for bankruptcy protection.” See, e.g., The London Free Press, July 17, 1999. See also the Financial Post, June 24, 1999, at C3, Chief Executive of CIBC World Markets in U.S. Resigns: “CIBC World Markets... was largely responsible for a 92% decline in the parent company’s fourth quarter earnings to $34 million, the bank’s worst quarterly performance yet.”

The CRA and managerial issues raised above must be closely considered in this proceeding; as specified above, CIBC should be required to submit further information in order to complete the record, and this information should be provided to ICP so that ICP can comment thereon.

On the current public record, this proposal should not be approved.

   Until next time, on the Bank Beat, for or with more information, contact us.

* * *

August 9, 1999

     Our focus this week:  E*TRADE - Telebank, and AmSouth - First American. In that order: while E*TRADE, the online stock brokerage, seems to believe that one can acquire a federally-insured savings bank automatically, and that the Office of Thrift Supervision (OTS) simply rubber-stamps such applications, the plot is thickening on E*TRADE’s application. When it first applied, it did not even include Community Reinvestment Act plan. Finally, on July 21, the OTS faxed ICP a copy of the just-submitted CRA plan for Telebank. As set forth in ICP’s August 9 comments to the OTS, the CRA plan is laughable, especially when compared to Telebank’s CEO’s other public statements.

     After the E*TRADE comment, you will find ICP’s and New Orleans-based Citizens Against Legal Abuse’s reply comments on AmSouth - First American.  AmSouth’s August 6 “response” was evasive; as a business matter, AmSouth mentions that it is now proposing a divestiture in Chattanooga, but doesn’t say what it is. Developing...

     Here’s E*TRADE, followed by AmSouth. For or with more information, contact us.

August 9, 1999

RE: Timely comment further opposing and supplementing ICP’s previous formal request for an informal meeting on the proposal by E*Trade Group Inc. to acquire TeleBanc Financial Corp. and its thrift

Dear Director Seidman, Mr. Albinson and others at OTS:

    On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Inner City Public Interest Law Center (collectively, "ICP”), this is a timely comment opposing and supplementing ICP’s previous formal request for an informal meeting on the proposal by E*Trade Group Inc. (“E*Trade”) to acquire TeleBanc Financial Corp. and its thrift (“Telebanc”).

ICP submitted a first timely comment and hearing request on this Application on July 12, 1999. Therein, ICP also noted that E*Trade and Telebanc had yet to submit the Community Reinvestment Act (“CRA”) Plan that the Application alluded to, and ICP requested an extension of the comment period on that basis. On July 21, the OTS faxed ICP a copy of this 9-page Plan, and granted ICP 20 days from July 21 to provide comments. This submission is timely.

The CRA Plan is weak, ill-considered, and, dispositively, has been contradicted by Telebanc’s CEO’s subsequent public statements. ICP is annexing hereto, and making part of the record in this proceeding, a Reuters news service article of August 6, 1999: “INTERVIEW: Telebanc Wants to Lend More Money:”

“‘We’ll look at a whole host of lending products from auto loans to student loans to consumer loans,’ [Telebanc] chief executive Mitchell Caplan told Reuters on Friday... Although Telebanc will not close the deal with E*Trade until the autumn, it has already begun to reap the benefits of belonging to a broker with more than a million customers, Caplan said. After running a recent promotional campaign mostly directed at E*Trade’s individual investors, the bank opened about 2,000 accounts within the first two week in June, said Caplan. ‘It’s a tremendous cross-sell opportunity,’ he said... The congressional debate over whether bankers, brokers and insurers should enter each other’s business did not concern Telebanc because it was a savings bank, Caplan said. ‘It was never an issue for us,’ he said, explaining how the bank’s status enabled it to offer all of those services.”

      Telebanc’s actual plans, stated for public dissemination to a Reuters reporter on August 6, entirely contradict the CRA plan that has been submitted as part of E*TRADE’s proposed acquisition of Telebanc. Therein, making explicit reference to this proposed acquisition (Plan at 2, Para. 4), Telebanc reiterates that it should be considered, now and in the future, a “wholesale” bank, and that it can legitimately limit its CRA duty to Arlington County, Virginia.

Clearly (based on Telebanc’s CEO’s own public statements), the applicants have plans to which they are committed enough to pronounce to Reuters, while presenting an entirely different plan, for CRA purposes, to the OTS and to the public on this proposal. This cannot be accepted, and is one of the disputes of fact to be clarified at the informal meeting that ICP has already timely requested, and is awaiting.

Currently, Telebanc claims it only has a CRA duty in Arlington County, Virginia, and that it can comply with CRA to simply purchasing mortgages. On Page 6 of the Plan, Telebanc states that in 1998, it purchased $668 million of loans in 1998. (There is no break down, even, of what percentage of these loans are in LMI communities). As of June 30, 1999, Telebanc had $1.6 billion in deposits. This, too, is unacceptable, as a matter of CRA and the purposes of the thrift charter.

The CRA Plan twice emphasizes that the bank is accessible to low- and moderate-income people by telephone. But note, inter alia, that Telebanc pitches mortgages (that is, credit products) to its Internet customers, and yet only discusses soliciting deposits from telephone customers. A purpose of the CRA is to reinvestment, including in LMI neighborhoods, in the communities from which the bank draws deposits. There is no showing that Telebanc does and would do this -- there is no connection shown between the loans Telebanc buys and the communities from which it draws deposits, no break down given for LMI loans, nothing. Finally, Telebanc has now publicly propounded its intention to directly make loans, rendering moot (and disingenuous) the June 1999 CRA Plans argument that it should be considered a wholesale bank, and that this skimpy CRA plan is appropriate, on this proposed acquisition.

Telebanc’s CEO’s above-quoted statements to Reuters also bring into starker relief the “gun jumping” concerns that ICP raised in its July 12 comment. See supra: “it has already begun to reap the benefits of belonging to a broker with more than a million customers, Caplan said. After running a recent promotional campaign mostly directed at E*Trade’s individual investors, the bank opened about 2,000 accounts within the first two week in June, said Caplan. ‘It’s a tremendous cross-sell opportunity,’ he said.” It is difficult to understand how Telebanc claims to be already “reaping the benefits of belonging to a broker” -- when it does not yet belong to a broker, and cannot do so unless and until it receives the required prior regulatory approval. E*TRADE appears to believe that to acquire a savings bank is an entitlement, and that regulatory approval is automatic, no matter how skimpy (and counter-factual) a CRA plan is submitted.

ICP expected that E*TRADE and/or Telebanc would by now have submitted a response to ICP’s July 12 protest and hearing request. But they have not. This further militates for an extension of the comment period, and for the convening of the informal meeting ICP has already timely requested, under the OTS’ Regulations.

The informal meeting should now be convened (ICP requests that it be held at the OTS’ Northeast Region office in Jersey City, N.J., as the OTS has agreed to do on Conseco / Green Tree’s application -- note that Telebanc (and E*TRADE) advertise extensively in New York/New Jersey, including with radio spots emphasizing that Telebanc is FDIC insured). On the current record, this application could not legitimately be approved.

Very Truly Yours,

Matthew Lee
Executive Director

* * *

August 2, 1999

    On Friday, July 30, a second comment was filed with the Federal Reserve Board opposing AmSouth’s application to acquire First American. A summary is below:

July 30, 1999

Board of Governors of the Federal Reserve System
Attn: Secretary Jennifer J. Johnson
Chairman Alan Greenspan, Governors
20th Street and Constitution Avenue
Washington, D.C. 20551

Federal Reserve Bank of Atlanta
Attn: Lois Berthaume, Vice President
104 Marietta Street, N.W.
Atlanta, GA 30303-2713

Dear Secretary Johnson, Ms. Berthaume, Chairman Greenspan:

On behalf of Inner City Press/Community on the Move (“ICP”) and Citizens Against Legal Abuse (“CA-LA;” together, the “Protestants”), the Inner City Public Interest Law Center submits this timely supplemental comment opposing and requesting hearings on the applications and notices of AmSouth Bancorporation and its subsidiaries (“AmSouth”) to acquire and First American Corporation its subsidiaries (“First American”).

The Protestants’ first comment, dated July 26, inter alia detailed AmSouth’s striking denial rate disparities between African Americans and whites in four markets, using 1997 data (the most recent data available when ICP prepared its first comment). While ICP has yet to receive a copy of any response by the Applicants, publicly, AmSouth has offered the following defense: “AmSouth’s denial rates to black applicants, [AmSouth spokesman Jim] Underwood said, ‘are just raw numbers’ that don’t reflect the myriad of reasons a bank officer might deny a home loan. Those reasons, he said, could include a poor credit history of lack of sufficient down payment.” Birmingham News, July 27, 1999.

The Protestants are submitting this second comment, even prior to receiving and replying to AmSouth’s formal response, is order to make the following common-sense point: while HMDA data does not contain information about credit history, it is fair to compare a lender’s denial rate disparity between whites and banks to other lenders’ denial rate disparities, in the same market. If, as here, an Applicant has a much higher denial rate disparity than other lenders in its markets, it falls to the Applicant to explain these disparities. Is there any reason to believe that AmSouth gets minority applicants with notably worse credit histories than other lenders in its markets? ICP contends that AmSouth’s lower market shares to blacks than whites would disprove any such defense.

In light of AmSouth’s defense (see supra), and AmSouth’s statements that ICP “only” analyzed its lending in four markets, ICP has begun reviewing AmSouth’s lending record in 1998, the HMDA data for which was released by the FFIEC on July 29, 1999.

In the Tuscaloosa, AL Metropolitan Statistical Area (“MSA”) in 1998, for conventional home purchase loans, AmSouth Bank denied 52% of applications from African Americans, versus only 9.0% of applications from whites. AmSouth’s denial rate disparity between African Americans and whites was 5.78 to 1.

Question: how can AmSouth defend a denial rate for African Americans 5.78 times higher than its denial rate for whites? Simply alluding to the fact that HMDA data does not contain credit history information (see supra) is woefully inadequate. Other lenders in Tuscaloosa do not deny African Americans anywhere near five times more frequently than whites. And AmSouth’s level of outreach (122 application from whites, versus only 25 application from African Americans) and level of lending (93 loans to whites, versus only ten loans to African Americans) do not reflect any greater-than-normal outreach to minority communities.

In fact, in the Decatur AL MSA in 1997, AmSouth made 31 conventional home purchase loans to whites, and NO such loans to African Americans. In 1998 in the Decatur MSA, AmSouth made 49 conventional home purchase loans to whites, and again NO such loans to African Americans.

In the Dothan AL MSA, AmSouth made 46 loans to whites, and only two loans to African Americans. In 1998 in the Dothan MSA, AmSouth made 45 conventional home purchase loans to whites, and again only two such loans to African Americans.

In the Gadsden AL MSA, AmSouth made 51 loans to whites, and only three loans to African Americans. In 1998 in the Gadsden MSA, AmSouth made 52 conventional home purchase loans to whites, and only five such loans to African Americans.

In the Florence, AL MSA, AmSouth made 25 loans to whites, and only three loans to African Americans. In 1998 in the Florence MSA, AmSouth made 24 conventional home purchase loans to whites, and only ONE such loan to an African American.

None of this reflects any greater-than-normal outreach to minority communities by AmSouth -- in fact, quite the opposite. This analysis of AmSouth’s disparate practices throughout its home state militates for the requested hearing, and for denial of this expansion application.

In the Tampa, FL MSA in 1998, for conventional home purchase loans, AmSouth Bank denied 28.6% of applications from African Americans, versus only 7.0% of applications from whites. AmSouth’s denial rate disparity between African Americans and whites was 4.09 to 1.

In the Orlando, FL MSA in 1998, for conventional home purchase loans, AmSouth Bank denied 37.5% of applications from African Americans, versus only 11.5% of applications from whites. AmSouth’s denial rate disparity between African Americans and whites was 3.26 to 1.

In the Nashville, TN MSA in 1998, for conventional home purchase loans, AmSouth Bank denied 31.3% of applications from African Americans, versus only 7.8% of applications from whites. AmSouth’s denial rate disparity between African Americans and whites was 4.01 to 1.

ICP has also reviewed AmSouth’s lending record in the Chattanooga TN market, where this proposal would clearly over-concentrate the market (and where AmSouth is not proposing any of the needed divestitures). In Chattanooga in 1998, for conventional home purchase loans, AmSouth denied 22.2% of applications from African Americans, versus only 7.5% of applications from whites. AmSouth’s denial rate disparity between African Americans and whites was 2.96 to 1. Again, this higher-than-normal (i.e. industry aggregate) denial rate disparity is not explained by any greater than normal outreach to minority communities by AmSouth. In fact, in this market in 1998, AmSouth made 199 loans to whites, versus only seven loans to African Americans.

AmSouth’s is a strikingly disparate lending record, including in the very market where this proposal would clearly over-concentrate the market (and where AmSouth is not proposing any of the needed divestitures). This merger application should be denied.

When AmSouth first announced this deal, “AmSouth spokesman Jim Underwood said that would be ‘minimal’ branch closings...”. Times-Picayune (New Orleans, LA), June 3, 1999, at C1. In fact, “an AmSouth spokesman said the bank may close a single branch, if any...”. St. Peterburg (FL) Times, June 2, 1999, at 1E, emphasis added. (Meanwhile, this was being contradicted to other, more specialized audiences: see, e.g., CNBC Squawk Box, June 2, 1999, quoting AmSouth’s CEO Dowd Ritter: “We see about 25 to 27 branches that overlap in our markets that we will probably close immediately.” Transcript # 99060100-Y50, emphasis added).

On July 7, the FRS asked AmSouth a number of questions, none of them having to do with the branch closings that would result from this combination, affecting the convenience and needs of communities.

Then, AmSouth announced to the mass media that it would close at least 24 bank branches if this merger were approved. See, e.g., The Tennessean of July 13, 1999, at 1A; the American Banker of July 14, 1999, at 4; and The Commercial Appeal of July 14, 1999, at C6. As a matter of precedent, other Reserve Banks ask the Applicant to turn in a list of branches being considered for closure. For example, HSBC has turned in such a list as part of its application to acquire Republic New York Corporation. The FRS requested such information during the acquisition of Leader Federal in Memphis in 1996. This information should be/have been requested, and ICP should be provided with a copy of the Applicants response. Note that AmSouth has a history of closing more branches that it projects. See, e.g., American Banker of April 25, 1995, at 1, AmSouth to Eliminate 44 Branches, 1,000 Jobs, reporting on massive cost cuts AmSouth imposed after its last acquisitions. Particularly in this light, This information should be/have been requested, and ICP should be provided with a copy of the Applicants response.

Attached hereto find further exhibits entered into the record in opposition to this merger, by CA-LA, supplementing the troubling (and still unresponded to) exhibits that were attached to the Protestants’ July 26 submission.

Also attached hereto is a copy of a letter to ICP from [ ] of Mobile, Alabama, recounting inter alia that [ ] and her son applied for a small business loan from AmSouth and were denied. The SBA suggested that Ms. Pair apply to another bank; she did, and on the same paperwork, the loan application was approved in only a few days. [ ]’s letter, made part of the record hereby, states: “These incidents serve to reiterate the unfair practices I believe blacks have experiences in deal with this bank.”

Also attached hereto and made part of the record herein is a copy of an e-mail sent to ICP by [ ] of Daphne, Alabama. Mr. Wright states inter alia that:

About eleven years ago, we bought our first house under Amsouth and were given a very high interest rate. The only way we could get our loan was to accept a 11.23% interest rate. The situation became worse when we tried to refinance our house several years latter. At the time the average rate was 8 1/2%. We had never been late on a payment and had an excellent credit rating. First they had an appraiser to come out and appraise our house for less than it was worth. Then they had a bogus credit check organization to find anything they could to hinder us. I was on a special payment aggrement [sic] with Mississippi State University for my student loan because it took me a couple of years to start my payments. Even though the university confirmed that I was on special payment and had not missed any of these payments, Amsouth did not accept our application to refinance. They eventually told us that the only way we could refinance our house was if we paid the fees in cash which totaled nearly $3000. This was after they checked our bank account and saw that we had that much money. They even asked us "how can you explain being able to save that much money". There are several houses live ours in the neighborhood occupied by white families. Their houses appraised for $83,000 at the time and ours appraised for $78,000. They had some calculation to make this work to our disadvantage.  I still have the papers...

The FRS should inquire into this, particularly the pattern alleged by [ ].  ICP has received similar complaints, including from Knoxville, TN in recent days, and anticipates the submission of further information about these and other complaints in the coming days.

AmSouth has also publicly offered as a defense the ill-defined “pledge” it announced on July 20. See, e.g., the July 27, 1999 editions of the Birmingham News, the Knoxville News-Sentinel, and the (Nashville) Tennessean. As previously noted, while the proposed combined institution would have branches in nine states, AmSouth and First American only even claim outreach in three states. For example, in the states where First American mis-integrated and is mis-running Deposit Guaranty, the banks do not even claim any outreach. In any event, it is unclear if the pledge is any more than what the banks independently do today. The banks’ July 20 press release states that “[t]he commitment is broken down as follows: $2 billion in small business loans and $1.5 billion in housing-related loans to low-to-moderate income families and/or geographies.” But in the same release, the banks state that “[o]ver the past two years, the two banks loans over $2.8 billion to small businesses of which $697 million were loans to small businesses located in low-to-moderate income areas.” The pledge of $2 billion in small business loans does not appear to be limited to LMI areas -- in which case, the $2 billion pledge is less than 30% of what the banks already do. Even if, though badly-worded, the banks mean $2 billion in loans to small businesses in LMI areas, the increase is insufficient, particularly in the states where First American mis-integrated and is mis-running Deposit Guaranty. The release also states that “[o]ver the past two years... AmSouth and First American provided $572 million in housing-related loans to families with low-to-moderate incomes and $348 million to families living in low-to-moderate income areas.” While there is some (undefined) overlap between the banks’ loans to LMI households and in LMI areas, just their LMI area loans would project out to 1.43 billion over five years. The pledge, then, appears to be even less than the banks’ current lending records -- which, as demonstrated, are insufficient. The pledge would not address the disparities documented to date into the record.

The Protestants request an extension of the comment period, in order (1) to reply to AmSouth’s response, when it is submitted, (2) to further analyze and comment on the 1998 HMDA data, which the FFIEC made available only on July 29, and (3) in light of the erroneous withholding of information under FOIA exemptions 4 and 5, and the withholding of all post-July 7 information. ICP has submitted a FOIA appeal.

On July 5-6, ICP requested, including under the Freedom of Information Act (“FOIA”), copies of the applications and notices of AmSouth Bancorporation and its subsidiaries (“AmSouth”) to acquire First American Corp. and its subsidiaries (“First American”) and for related records including those reflecting communications between the FRS and AmSouth or First American related to the proposed merger.

By letter dated July 14, the Secretary partially denied ICP’s request. ICP received the documents the FRB was providing, by fax on July 19. This appeal is being submitted less than ten business days thereafter, and is timely.

The Secretary’s July 14 letter cites FOIA exemptions 4 and 5. It is highly questionable how and if exemption 5 applies to the withheld information. Vaughn v. Rosen (II), 523 F.2d 1136, 1144 (D.C. Cir. 1975) holds that, to comes within exemption 5, a document must be a direct part of the predecisional process in that it makes recommendations or expresses opinions on legal or policy matters to be decided by the agency, and the government must carry its burden of establishing the existence of a genuine predecisional process. See also Coastal States Gas Corp. v. Department of Energy, 617 F.2d at 868. The FRS has redacted, for example, from its July 7 letter to AmSouth’s attorney the reason the Application, even as of that date, was being sent to the Board. The determination to sent the Application to the Board was a decision, an application of the Board’s policies. It would not chill debate within the FRS to release this information - in fact, most Reserve Banks release this type of letter with no redactions.

Question 7 of this letter has been redacted in its entirety; ICP has no way to know if the FRS is invoking exemption 4 or 5 for this question.

ICP has not been provided with a copy of AmSouth’s responses to the FRS’ July 7 question letter. ICP is a protestant to this Application, and should be provided with a copy of AmSouth’s response.

Furthermore, as set forth above, while AmSouth first said it would close no more than one branch, it later stated it would close 24 branches. As a matter of precedent, other Reserve Banks ask the Applicant to turn in a list of branches being considered for closure. For example, HSBC has turned in such a list as part of its application to acquire Republic New York Corporation. The FRS requested such information during the acquisition of Leader Federal in Memphis in 1996. This information should be/have been requested, and ICP should be provided with a copy of the Applicants response.

Finally, ICP was much surprised to see that the FRB’s Form H2A of July 23, 1999 omitted mention/notice of AmSouth’s Section 3 application, the comment period on which runs to July 30. Earlier H2A’s listed this application (see attached), but then the FRB dropped it -- while the comment period was still open. This is inconsistent with the FRB’s commitments in connection with the new Regulation Y, and has prejudiced the public. This should be inquired into, and the comment period must be extended.

On the current record, this Application could not legitimately be approved.   If you have any questions, please telephone the undersigned at (718) 716-3540.

Respectfully submitted,


Matthew Lee
Executive Director
Inner City Press/Community on the Move
Tel: (718) 716-3540
Fax: (718) 716-3161

    Until next time, we’ll see you on... the Bank Beat. For (or with) more information, contact us.

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